Standing Committee F

[Mr. Joe Benton in the Chair]

Finance Bill

(Except clauses 4, 19, 23, 26 to 29, 87 to 92, 131 and 134 and schedules 1, 5 and 38) - Clause 98 - Films: restriction of relief to films genuinely intended for theatrical release

Howard Flight: I beg to move amendment No. 86, in page 75, line 3, after 'release', insert 'or constitutes long-form drama'.

Joe Benton: With this it will be convenient to take amendment No. 87, in page 75, line 19, at end insert—
'(d) ''long-form drama'' means a production of a duration of 60 minutes or more in total, shot to cinematic standards, of single or short episodic type with a budget in excess of £600,000 per hour.'.

Howard Flight: As the Committee will be aware, clause 98 restricts the reliefs for expenditure on the production or acquisition of British qualifying films solely to those intended for commercial cinema release. The tax relief was originally introduced in 1997. We obviously all want the British film industry to prosper, but we want other industries to prosper as well. There was a general view when the provision was introduced that the tax incentives were potentially over-generous and—dare I say it—intended for interest groups not that far away from the Labour party.
 The tightening-up amendments are somewhat flawed. First, there are several outstanding contracts in relation to films being made for television where money and other factors are already committed. It is against principle to change rules in the middle of that. Secondly, in ruling out all television productions, there is the issue of expensive and serial productions. Amendments Nos. 86 and 87 are designed to retain the tax incentives for long-form dramas. Amendment No. 87 defines a long-form drama as 
''a production of a duration of 60 minutes or more in total, shot to cinematic standards, of single or short episodic type with a budget in excess of £600,000 per hour.''
 I would describe such a drama as a type of production such as ''The Jewel in the Crown'', which, although made for television, was a valuable export and not a minor production. I will deal with the other aspect in clause 88, but amendments Nos. 86 and 87 are designed to question whether the Government want to rule out even serious, major television serials.

John Pugh: This is another example of the Treasury trying to make things happen. Not content with bean counting, an objective of the Treasury now is to encourage cultural development. Historically, Governments have had two routes by which they can do that. They can make things happen by negotiating with other Departments, such as the Department for Culture, Media and Sport, and
 releasing money to Departments and agencies to stimulate growth, in this case in the creative film industry. They can release immense largesse, but in those circumstances, they are always unsure as to how the money will be spent.
 That particular route raises questions such as whether the DCMS is the appropriate organisation to stimulate the film industry, and whether it has the capacity to make the right judgments or is involved in micromanagement of an industry that it may not perfectly understand. None the less, we are aware that much Government thought goes into stimulating the creative film industry, and not just Government thought, but that of Government agencies such as the Welsh Development Agency, the Scottish Parliament and so on. 
 There is a variety of different initiatives taking place within the different regions of England and the different countries that make up the United Kingdom. I wonder what assessment the Treasury has made of the different levels of support, whether it is assured that economic aid is wisely used in the best way, and whether there is a similarity in the different levels of aid across the United Kingdom. However, I am fully confident that the route that I have just described is not the route that the Treasury prefers to use to produce the desired product. It has always preferred, and seems increasingly to prefer, route two: to create a fiscal environment in which an industry—in this case the film industry—may thrive. The Treasury prefers that, I think, because it enables it to have a level of hands-on control of the process that might be left to other Government Departments. 
 The argument against that route is that the levers that the Treasury ends up using are not sufficiently sophisticated. That is certainly proved here, where several issues of selection arise. In one sense, the Government have been selective—they have singled out a particular industry, as the hon. Member for Arundel and South Downs (Mr. Flight) has just pointed out. They have given benefits to one particular sector of creative industry as opposed to another. However, there is an argument that they have not been selective enough. The first experience of the fiscal benefit has been that a number of enterprises, such as soaps, have benefited, which was never the Government's intention. We here have a tightening up of the fiscal regime so that the Treasury can achieve whatever it understands its objectives to be. 
 The Treasury is then assailed by the objection that it is being too selective. Equity and other such organisations have pointed out that long-running and entirely creditable enterprises that do not end up as a fully fledged film are excluded, but should not be. 
 My general conclusion, and that of my party, is that the Government are here very unclear about what they want to achieve. I would appreciate some clarification from the Paymaster General about what they intend to achieve, how far they feel that they have yet achieved it and how they will extricate themselves from the position—something of a muddle—that they have got into. I should also like to ask the Paymaster General whether, prior to producing these changes, the Government have assessed the efficiency of the 
 changes already made and how the changes in the tax regime have married, or complemented, the various supports that the film industry receives from other Government Departments.

Chris Grayling: Good morning, Mr. Benton, and welcome back to the Chair.
 I support the amendments, and commend my hon. Friend the Member for Arundel and South Downs for them. In tabling them, he has highlighted an extremely important issue. While I fully understand the Government's aspirations to ensure that the reliefs provided to the film industry do indeed support the film industry and cannot be used to support the television industry, which is not noticeably short of money, the practical reality is that the film and cinema industry is very different from what it was, even 10 years ago. We are seeing a continual growth in the number of formats and different outlets for creative works. We are seeing the expansion of DVD and will increasingly see the development of online services. My hon. Friend's use of long-form drama as a vehicle on which to focus the reliefs provides important support to the independent producers who are producing high quality cinematic-standard material but who might ultimately use different forms of distribution to earn money from their work. 
 The amendments provide a sensible balance between meeting the obvious requirement to ensure that reliefs are limited to providing the proper support to the creative sector in this country for which they were intended, and ensuring that we do not focus exclusively on a format that, if still the most important outlet for major works of that kind, represents only part of the market in today's world. For many productions, that format does not represent the market at all. 
 I hope that the Paymaster General will support the amendment. It will help to clarify the law and to give support to an important part of our creative sector.

Dawn Primarolo: Good morning, Mr. Benton.
 In response to the amendments, I start by saying clearly to the Committee that the relief was not put in place to recognise the different ways in which films are distributed, but to recognise risk, particularly different production risks. Before I respond to the amendments, I shall quickly remind the Committee why the relief was introduced, and of the purpose of the clause. 
 The clause restricts film tax relief for British qualifying films to films made for the cinema. That was the original intention of the relief, which was clearly stated in Committee and in all drafting. It will end the heavy misuse of relief by television programmes of all descriptions, including soap operas, game shows, makeover programmes, reality television and so on; however creative that industry is, and however much we respect it, such programmes are not, by any stretch of the imagination, films intended for cinema release. 
 The main relief was introduced in 1997 and was aimed specifically at pump priming the production of low-budget British cinema films. We were prompted 
 by the evidence of the Middleton report, which focused on the structural problems in the film industry that make it difficult for British film makers to find a market for their films and get them screened. I shall return to that problem because it is crucial.

John Pugh: Will the Paymaster General give way?

Dawn Primarolo: The hon. Gentleman has already asked a question, which I should like to answer by explaining to the Committee what we are doing. I shall then be happy to give way to him.
 I am a little perplexed by the hon. Gentleman's contribution. The hon. Member for Kingston and Surbiton (Mr. Davey) said on the Floor of the House when the measure was announced in the Budget debates that the Government were doing precisely the right thing because an outrageous abuse of relief was going on; the Liberal Democrats supported the Government.

Mark Hoban: Will the Paymaster General give way?
Dr. Pugh rose—

Dawn Primarolo: I will have to first give way to the hon. Member for Southport (Dr. Pugh) if I am to give way at all.

John Pugh: I concur with my hon. Friend the Member for Kingston and Surbiton that an abuse is going on, and that we want it cleared up. Has the loss to the Exchequer owing to that abuse been quantified?

Dawn Primarolo: Yes. If the hon. Gentleman looks in the Red Book at the income generated as a result of closing off the relief, he will see that the projected savings to the Exchequer are in the hundreds of millions. The relief, which was for use in a limited number of circumstances, originally cost £30 million; however, a time lag occurs in the claiming of that relief. Last year, and during the current financial year, there has been a sudden and massive growth in the use of relief as a direct result of television accessing it, which was not the intention.
 I could refer the hon. Gentleman to the Red Book or to the savings figures. I assure him that we are not talking about tens but hundreds of millions. The relief was not designed to be a subsidy to television companies.

Mark Hoban: I almost regret intervening on the Paymaster General, as I simply rose to be helpful. My recollection of Second Reading—perhaps the hon. Lady remembers too—is that the hon. Member for Kingston and Surbiton was in favour of abolishing the relief in its entirety. As the hon. Lady said, such comments strike a jarring note.

Dawn Primarolo: Indeed. I am very grateful for the hon. Gentleman's prompting. I was saving that point in case I needed it later in the debate, but now it is on the record.
 On behalf of the Liberal Democrats, the hon. Member for Kingston and Surbiton said that his party did not support the relief in the first place. It beggars belief that we should analyse something that it thinks should not be there. 
 The most important point concerns structural problems, risk and films being made for the cinema. As far as we can see from the substantial evidence that has been presented to us since we announced our intentions in the Budget, TV productions do not encounter the same problems as cinema films. A typical TV drama series is made by commission from a broadcaster and its producer has a guaranteed customer and income. The Government believe that in such cases the relief has been used not at all as originally intended. Producers have accessed tax relief in order to reduce the price paid by the broadcaster, which is not acceptable to the Government. There is no justification for TV's use of special incentives that are designed to support the British film industry, and the clause is designed to stop that happening. 
 The amendment moved by the hon. Member for Arundel and South Downs addresses the question of what he describes as high-value TV drama. Since the Budget announcement, we have received a number of representations from the industry to retain relief for high-value TV drama. If high-value TV drama is defined by a clear principle, it is interesting that suggestions from the industry as to what it is have ranged from dramas costing £600,000 an hour to those costing £1.5 million an hour, which shows that the industry has not formed a consensus on what it is and what sets it apart from other TV dramas. If the argument that high-value TV dramas face risks and structural problems similar to those of films is going to be advanced, we would expect the industry to have a clearer definition of what constitutes high-value TV drama. 
 I should say very clearly to the Committee that the Government accept that high-value TV drama is often made at the same facilities by the same technicians as cinema films. We also recognise that that type of production attracts inward investment of about £150 million a year and operates in a very competitive environment—as do many other industries. The question is, of course, why we should make an exception here, and those factors by themselves are not enough to justify special tax incentives.

Chris Grayling: Has the Paymaster General given full consideration to the fact that although TV producers normally have, as she mentioned, guaranteed revenue, many TV groups that are independent from the broadcasters invest in their own right in productions to sell around the world without guaranteed contracts? Does she accept that such TV groups are facing challenges in some marketplaces from producers that have tax reliefs? Did she assess the competitive position of such organisations in the international markets before drawing her conclusions?

Dawn Primarolo: We have considered the question of films and productions, the rights for which are sold elsewhere, and if we were to receive clear information on that we would be prepared to consider it further. However, the problem is that one would end up with a huge range of reliefs, because the distinction cannot necessarily be made on the basis of cost per hour in production. For instance, there could be a debate
 about whether television drama that is made in a particular way or sold in a particular market should also be considered for assistance. The case for such relief would have to be made separately. On behalf of the taxpayer, the Government would have to make a judgment on whether using a relief on a scale that was not intended was a sensible expenditure.
 The problem with approaching the matter in the way that the hon. Gentleman suggested—he is right about the diversity of production—is that we could end up with a totally unworkable relief and an open door for any claim. For instance, my understanding is that relief was not claimed only for productions of high quality television drama; it was claimed per episode. That is just not on. It is not as though the industry was not warned that that was not the Government's intention. Therefore, if the relief has been spoiled, if there are those who cannot now get access to the relief although their claims might have been justified previously, they must look to their own industry. If the assistance is not sensibly administered, the Government cannot be expected to sit by while huge amounts of revenue are used. Frankly, we have other, higher priorities for the money. 
 We are discussing high-value drama, particularly the big-budget television series made by multinational producers, not the smaller producers that the hon. Gentleman mentioned. From all the evidence, it is clear that they are not subject to the same structural and commercial constraints. Therefore, relief is not justified, as the risk is not the same. We continue to consider the question of high-value dramas, but the industry must demonstrate clearly that the risk, structural problems and use of the infrastructure are the same, before we would reconsider our decision that access to the relief is for cinema production only. That has not been demonstrated yet. Therefore, the Government are not minded to consider any exception on that basis. If the case were made, I would certainly reconsider the decision.

Chris Grayling: May I give the Paymaster General an example of a case in which the legislation might actually cause problems? Increasingly, authors are publishing their first works on the internet. With the arrival and substantial spread of broadband, it is perfectly conceivable that smaller companies might produce low-budget movies and try to provide access to them through online means rather than through the cinema. They would be excluded from benefiting from any of the reliefs, were they to do so. My fear is that the change that the Government propose would actually close avenues of creativity for the smaller producers in a way that perhaps would not be desirable.

Dawn Primarolo: I understand the hon. Gentleman's point and acknowledge that he is experienced in such matters. However, he will understand, not only because members of his party constantly point it out to us, that the complexity in trying to deliver a relief in specific circumstances as proposed by the amendment would lead to pages and pages, we fear, of legislation and we are not sure how much added value, in terms of assistance, we would be able to provide. Because of our experience with the
 relief, our particular fear is that if the Government try to be of assistance, we will find that, in the words of the old adage, we will give an inch and they will take a mile. Here, people have taken a million miles from the intention. There are times when Governments of all political persuasions must say, ''No, that was not the intention.'' Our patience and interpretation of the relief are being stretched to breaking point, and we shall return to the original intention by closing off the places where we see abuses taking place.
 The £600,000-an-hour limit that the hon. Member for Arundel and South Downs suggested in the amendment would exclude soap operas from the relief, but would include a lot of what we consider to be the more ''ordinary'' television dramas—if anyone is a fan of them, as I am, I hope that they will excuse me for calling them that. I enjoy watching such dramas, but they should not necessarily be within the scope of the relief. They are far removed from the films that were originally intended to fall within its scope, however much viewers enjoy them. 
 That type of product should not, in principle, be able to obtain the film tax relief, so I am not prepared to accept the hon. Gentleman's amendment. In particular, I must say to him that given current behaviour, what appears to be, and what I am sure he thought was, a modest suggestion runs at an Exchequer cost of £150 million in 2003–04. That is just not acceptable. On that basis, I hope that he will agree not to press the amendments and will tell those whom he knows in the industry of the seriousness of what has gone on and the Government's resolve to stop it, and implore them to focus specifically on the question of risk and whether the risks of such television productions are really the same as those involved in making a film. If that case can be made, the Government still have time to consider it and I would be prepared to do that. However, we are not prepared to consider providing a relief to those whom we never intended to include in the remit of the relief and who are not so included.

John Pugh: It is always a pleasure to be patronised by the Paymaster General, so perhaps I can give her another opportunity. In saying that the Government will make savings of at least £100 million, has she not acknowledged that the Government have already lost hundreds of millions by poor drafting? Is it not appropriate at this point to blame not only those who have abused the legislation but those who possibly framed it inadequately? Part of the burden of blame must lie there.
 Dawn Primarolo: I find that patronising a Minister is never a good way to bring them round to an hon. Member's way of thinking. Of course, there is a risk for any Government when they draft legislation. The previous Government had the same problems, for example with profit-related pay. Governments draft legislation on the basis of good will, understanding and agreement that they wish to encourage a specific activity. Unfortunately, there are those who then take it beyond its intention, in tax planning. That is also the nature of complex anti-avoidance legislation. If every 
 time that the Government introduced legislation, it had to be accompanied by massive anti-avoidance clauses, the Committee would find its job even more difficult. 
 I would also say to the hon. Gentleman—this may be a little old fashioned—that the Government acted in good faith, and we believe that that faith has been breached. We know that in the industry, those who were using the relief knew that they were on borrowed time. We have had extensive discussions with the representative bodies. There is an important issue concerning British film makers and risk, particularly for low-budget British films, and what we can do to assist them. We have left that assistance in place. However, we cannot allow the current situation to continue. 
 I would say finally to the hon. Gentleman that if Governments are not prepared to act to encourage what they believe is of use and a good contribution, and if the Treasury only ever operates on a dead cert, when it knows that it totally controls the situation, an awful lot of current legislation would not be on the statute books. We do not see similar scales of abuse elsewhere, and we will not tolerate it in this instance. I hope that the hon. Gentleman can see that I do accept that if the matter can be settled, there may be an issue concerning the high-value dramas. We have not been able to settle it thus far, but if the point of risk can be satisfied and the structural issues resolved, I would certainly be prepared to consider it. 
 The wider points raised by the hon. Member for Epsom and Ewell (Chris Grayling) may be the subject of a future debate about the changing nature of the creative industries and whether the Government should be involved in that area. That would be a detailed and long debate, which I look forward to his pressing on the Government in future. It is not the right place or time to do it now, however.

Mark Field: I wish to make a brief contribution to the debate. I confess that I have considerable sympathy with the Government's position on tightening up on the eligibility for tax relief in relation to United Kingdom film production. It is perhaps the case that the Minister has put forward the armageddon scenario that £150 million of taxpayers' money would be swallowed up by a vast array of television and other industry bodies, if that tightening up did not take place. None the less, the point has been relatively well made.
 One of the great concerns that we have expressed, which is one of the reasons that we have tried to tailor a sensible compromise in relation to the amendments, is that it is difficult five, seven, eight or nine years after these provisions were put in place in the Finance Acts to ensure that the British film industry had some sort of encouragement to entirely qualify what we were trying to achieve. I know that it might be said that the provision was supposed to be entirely narrowed to encourage the British film industry, but several of my hon. Friends have made the valid point that the 
 entertainment industry is now much more interdependent and interlinked. 
 I fully appreciate the Minister's point that the direct intention was not to allow—dare I say it—second and third grade television programmes to benefit from such reliefs, but it is probably the case that the reliefs put in place initially were envisaged to encourage the film industry in the broader sense. Therefore, there is a risk that without amendments of the sort that we have proposed for high quality long-form drama, some of the product that was envisaged to benefit from the provisions when they were introduced in the mid–1990s will now fall outside their remit. 
 Much of the British film industry is based in my constituency, in Soho and the west end of London. It is fair to say from the indications that I have had from the industry, which has clearly lobbied the Treasury not just in the last few months but, I suspect, fairly continuously during recent years, that most of the feedback about the proposed changes has been pretty positive. It would be a disaster for the film industry if the Chancellor, or a future Chancellor, felt that the whole system was being abused and decided to draw a line through the whole thing and say that the film industry should have no benefit whatever given the abuses that are open to it, which would obviously not be the right way forward. The film industry reaffirms the support that Governments have given to it by reducing its costs under the Finance (No. 2) Act 1997 and the Finance (No. 2) Act 1992. 
 Restoring the credibility of the entire scheme is at the forefront of the Government's proposals, and there has been ongoing lobbying from the Film Council and various film bodies. Outside the confines of the amendment, there are other narrow concerns that the Paymaster General will wish to address at some point during the debates on this clause and clause 99. It is important to re-focus the tax relief, but we need collectively—I accept that this is ultimately a Treasury decision—to consider what we are trying to achieve. In relation to both these amendments and similar ones that we may propose in future, the fast-changing world of the entertainment industry may make it too difficult to tailor relief. 
 I appreciate that the real risk is that the amendments are not watertight, and if they are not we run the risk of the abuse to which the Paymaster General earlier referred.

Dawn Primarolo: First, I agree with the hon. Gentleman that the Government are maintaining the commitment to support the film industry in the original relief.
 Secondly, I want to remind him that the Red Book's scoring shows that the measure will save the Government £225 million in 2003–04 and £295 million in 2004–05. Those are not insubstantial figures. Although I am prepared to look at the issues that the hon. Gentlemen have raised, I must say that that is a lot of money. To give that money back inadvertently by providing other reliefs would not be acceptable, and we need to concentrate on that point.

Mark Field: I accept the Paymaster General's remarks. However, it strikes me that the intention,
 which goes back some years, is to produce high quality product that is predominantly, if not exclusively, British. If we take too narrow an interpretation we shall run the risk of high quality drama going overseas, which would be bad news for not only the film industry but the whole entertainment industry in the UK.
 It sounds as though the Paymaster General is unlikely to support the amendments, but I hope that we can keep an eye on the situation in the years ahead. If there is a real risk over and above the day-to-day special pleading that any industry puts forward and there is real evidence that we are losing a significant amount of business overseas, and in particular to the nascent and fast-growing eastern European film production market, we would want to look at the matter again to ensure that the intention to promote high quality film product in this country is maintained.

Howard Flight: First, I am sorry to tell the Paymaster General that I do not have lots of friends in the film industry, which is not territory that I know very well. I suggest, perhaps cheekily, that her colleagues will have more friends in the film industry than me.
 No one wants tax incentives to be used unnecessarily when production risks are not there. In 1997, we suggested that the incentives were more generously drafted than was necessary. Although it is fine to blame the industry, it is fair to say that if one uses such incentives, there is little sense in not crafting them to achieve specifically what one wants; otherwise they will be abused, as the Paymaster General said. 
 I am glad that the hon. Lady has recognised the issue to which the two amendments refer. My understanding is that the original purpose of the relief was to generate new economic activity in the UK film industry. The amendments refer to long-form drama, which is very much a part of the industry, and there is a danger that much of it will leave the UK if it is cut out completely. Therefore, I bowl it back to the Government to try to craft with the industry what, if anything, they feel is appropriate to address the issue that the amendments raise. That was their intention. 
 It is accurate and fair to say that the incentives are designed to encourage those parts of the industry that have production risks, not just films for cinemas. I may be completely out of date, but I repeat my earlier point that ''The Jewel in the Crown'' was the best thing made by the British film industry at the time and for a long time afterwards. I recollect that that enterprise was actually very high risk. I hope that productions such as that, some of which may be more deserving than some stuff made just for the cinema or theatre, will be considered. 
 I believe that the Government understand the point and seek to address it. I do not know whether the amendment is too wide fiscally, but I shall take the Paymaster General's word on that and hope that she can solve the problem.

Dawn Primarolo: I am grateful for what the hon. Gentleman has said. I hope that he understands that I shall continue to consider the matter until the Bill returns to the House. I have tried to explain clearly the major issues that must be settled.

Howard Flight: I understand and accept what the Paymaster General has said. Let us hope that she and the Revenue can craft something that meets the point without costing too much. On that basis, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Howard Flight: I beg to move amendment No. 88, in page 75, leave out lines 30 and 31 and insert—
'unless before 17th April 2002 expenditure has been incurred on a film or a binding commitment to incur expenditure on a film has been entered into, in either case or in aggregate representing more than 20 per cent. of the budgeted cost of the film.'.
 The amendment is about an issue that has been raised by those in the industry and in the accounting profession. The Bill could produce retroactive effects of cutting off incentives in midstream for productions for which contractual commitments have been made, because they become non-qualifying. Clause 98(4) provides that the restrictions apply to all films 
''(a) completed on or after 17th April 2002, or
(b) completed before 1st January 2002 but not certified by the Secretary of State before 17th April 2002,
unless an application for certification was received by the Secretary of State before 17th April 2002.''
 Section 42 of the Finance (No. 2) Act 1992 permits two or three years after the time that the expenditure arises to make a claim, so the exception should not have wide application. However, some film makers—the Government will be aware of them, as some high-profile figures have been banging on their door—have incurred expenditure, entered into binding commitments to incur expenditure or concluded financing arrangements on the basis of the wider relief that had effectively been in place, even though the Government may not have intended it, until 2 July 2005. 
 Therefore, there will be some contractual messes resulting from the retrospective nature of the changes to tax relief. Projects were appraised and commitments made but, clearly, some projects might have been rejected in the absence of wider tax relief. In moral terms, the Paymaster General could say, ''Naughty boys! You were not doing what we wanted you to do''. They were, however, doing what the law permitted them to do. Unfortunately, a principle of our tax system is that the moral argument does not matter if the shutters come down after commitments have been entered into. 
 As I commented earlier, perhaps the Government have done their homework and found out the number of people who will be affected—perhaps it will be few. However, if there is no major financial exposure, when and where the shutters come down should be reconsidered.

Chris Grayling: I support the amendments moved by my hon. Friend because production companies sometimes live on a wing and a prayer in cash-flow terms. Financing major productions, paying the bills on time, getting revenues in, selling products and getting them into the marketplace and generating
 income give regular nightmares to accountants in the business.
 The amendment addresses the unwelcome shock in the clause. The Paymaster General is right to point out that the industry has had indications for some time that the Government were minded to make changes, but productions have nevertheless begun and work is under way that have factored in the relief; if they lose it, the knock-on effect on the cash flow of businesses producing films could be significant. The very survival of a production company could be undermined by the shock generated by the sudden loss of relief mid-production. I hope that the hon. Lady will take on board a sensible amendment that would ensure that damage is not done to current commitments while achieving the objectives that she set out.

John Pugh: I support the amendment. We could have a debate on whether the fault lies with the drafting or with those that have abused the relief. Regardless of whether people have kept in line with the spirit of the law, or have second-guessed its intentions, people will have embarked on enterprises and, in some cases, engaged in contracts with others who depend on their services. As a matter of moral principle, people who have made an honest error about future legislation, but who have acted thoroughly and according to the letter of the law, should not be penalised. The amendment should therefore be supported.

Mark Hoban: I want to speak in support of the amendment moved by my hon. Friend the Member for Arundel and South Downs.
 To cut relief off in midstream, as the clause appears to do, will cause damage to the film industry. The Paymaster General referred to sending out messages about the abuse of relief, but we should bear in mind the section 48 relief, which is the one that some production companies have abused. My hon. Friend the Member for Cities of London and Westminster (Mr. Field) referred to the creative sector being based in Soho; I also suspect from the way in which the relief has been abused that the creative sector also rests in the City. 
 The original relief was set up for three years, but was extended in last year's Finance Act before the election until 2 July 2005, so it was legitimate for companies to plan—notwithstanding the messages that the Paymaster General may have given out—that productions in progress would benefit from the tax relief. It is therefore unfair for such a relief to be removed in midstream. We should recognise that companies were perhaps led to believe that tax relief under section 48 would continue for some time, and that any productions in progress would receive it. Suddenly to withdraw that tax relief at this stage will, I think, damage the film production industry as well as the companies that produce such a diverse range of outputs as quiz shows and the reality television shows to which the Paymaster General referred. Removal of the relief in midstream is the wrong measure to take. I hope that the Government recognise that and accept the amendment.

Dawn Primarolo: Before discussing the amendment specifically, perhaps I can answer the hon.
 Gentleman's point about the extension of the relief in 2001. At that point, the relief had been running for less than four years and as the film industry was labouring very hard, the relief has been very helpful to it. It takes years to make a film, for the financing to be finalised and for the profits to come through and I know that the hon. Gentleman will understand, from his experience outside the House, that there was a time lag before we saw that the relief was moving into areas where we had not intended it to apply. That is precisely why we felt that we had to move now and why the figures in the Red Book for the relief that will not be paid if the relevant clauses are passed seem suddenly so high.
 The question of transitional relief is worthy of consideration. I want to explain the Government's attitude to the amendment and to transitional relief proposals. We have received much representation since Budget day that revolves around programmes already in production. We have some sympathy with producers who have contracted to make a drama for firms who have factored the tax relief into their budgets. However, there are considerable difficulties in constructing a transitional relief that can be limited to circumstances in which it would not be abused. 
 I shall explain what the problem was in the way in which the relief was being misused. As I said earlier, television production companies make programmes on commission from a broadcaster for an agreed amount. When the series is completed, the producer certifies it with the Department for Culture, Media and Sport as a British qualifying film. The producer then does a sale and leaseback deal with a third party, normally a film partnership. The third party takes the tax relief on the purchase of the film, and a proportion of the tax relief is then passed back to the producer through the leasing structure. That is the crux, relating to the point that the hon. Member for Fareham (Mr. Hoban) kept making about contractual relationships. Normally, there is no contractual agreement with the third party until the film is completed. That is the mechanism that caused all the difficulty. 
 The new rules apply to films completed on or after 17 April. That means that a producer with a series in commission on 17 April will not be able to use a tax-based sale and leaseback deal when the series is completed. If I may try to describe the situation, that part of the deal is not yet in place. There is no contract. It is not as simple as saying that there was a complete contract and that the producer had made commitments and already taken a substantial risk in agreeing to sell a programme, while not knowing whether their costs were covered until the end of the production when the programme had been sold and worked its way through the system. By any stretch of the imagination, that is not what we intended to happen.

Mark Hoban: Will the Paymaster General consider a situation in which, for example, a production company has entered into a contract with a broadcaster to provide 40 per cent. of the cost of a production relating to its sale in one country, perhaps with overseas sale providing additional revenue? In such cases, a chunk of the budget is often speculative
 because the producer hopes to sell the programme on the international market. That producer will have factored into the equation the likelihood of receiving the relief in some shape or form at the end of budget and will have contracted artists, camera crews and so on for half the cost of the production. Then 17 April arises and that company is up a gum tree.

Dawn Primarolo: The problem is how to provide transitional relief. The hon. Gentleman referred to a contract to produce with everything in place and that would be a hook on which to hang it. However, if the producer has sold the programme, apparently for less than it will cost to make, the final contract that brings the relief is not determined and that creates a problem in providing transitional relief. I shall go a little further in explaining the difficulty. It is the way in which the relief is used that makes it so difficult to work out whether transitional relief would be appropriate.
 We could have delayed the date of commencement long enough for all those series in commission on Budget day to be completed. We could have delayed until the end of the year, but that would have allowed every TV programme or series completed in 2001 to qualify for the relief and that is not our intention. If we just changed the date, the extension would include the soaps, game shows, makeover programmes and so on and the Government would lose virtually all the estimated savings of £225 million in 2003–04, and that is assuming that the relief was used only by those who would normally expect to use it and not by those who might decide to move everything forward because they had been given notice of what would happen. Announcing in advance that the relief will change would have an effect on behaviour in terms of bringing forward commissioning to include it within the definition. That could cost us more, which would be bizarre. Producers might certify even more programmes with the Department for Culture, Media and Sport in 2002 to acquire a stock certificate product that they could use for sale and leaseback then or later. 
 We considered those issues and decided that the risks were too great. Those risks are replicated in the amendment and we could not see a way of dealing with the commencement date. I am sure that the hon. Member for Epsom and Ewell would have argued the other way if we had done away with the relief because it was being misused and then provided for it to continue.

Chris Grayling: Will the Paymaster General give way?

Dawn Primarolo: May I finish my point before giving way?
 Having said that, I recognise that the commencement date causes particular difficulty for producers who, on Budget day, were locked into an arm's length contract with broadcasters to make dramas for sums that anticipated a proportion of the budget coming from sale and leaseback when the series was completed. I am not unsympathetic to that problem and am struggling to respond to it without losing revenue to the Government. 
 The Revenue have had extensive and constructive discussions with the industry exploring whether a targeted transitional relief is feasible in those circumstances. The main stumbling block is the absence of any contract between the producer and the eventual buyer on Budget day that would allow relevant programmes to be identified in law and practice. 
 The only evidence of an anticipated sale and leaseback is the arithmetic of the fee agreed with the broadcaster, and we cannot construct a transitional relief upon something so intangible. I repeat that I recognise the feeling in Committee that that is a serious and urgent issue for the producers concerned. I promise to give the matter further consideration and shall continue to have discussions to see whether there is an alternative way to achieve the same result.

Chris Grayling: I thank the Paymaster General for giving way again. I became slightly anxious when she expressed surprise at a producer selling a programme for less than its overall cost. Does she recognise that major productions are increasingly not sold in one block to one broadcaster? A production company takes a decision on the basis of sales across a number of rights areas and will often have secured contracts only for part of a programme, in which case it is carrying a considerable amount of risk. The loss of the reliefs could have a fundamental affect on the finances of a business carrying that block of risk.

Dawn Primarolo: I do recognise that point, which takes us back to the previous amendments about the nature of the risk, whether it is comparable with that of cinema films and the value of the production. I recognised that point when I tried to find a way in which to respond on the question of high-value dramas, which would typically fall into that category, and I remind the hon. Gentleman that I am still looking at that closely.
 I am saying clearly and strongly to the Committee that the scale of the loss is so great that I need to be particularly cautious and the industry needs exactly to establish with us the points that the hon. Gentleman has rightly raised. I regret this deeply, but the Revenue is aware that there are problems with some early schemes that have been marketed but not yet used, and I regret to say that I shall have to return on Report with proposals to deal with that issue. We are making the move to close that further loophole with the considerable assistance of the vast majority in the film industry, which is determined, along with the Government, that the integrity of the relief should not be undermined. That relates to the point that the hon. Member for Cities of London and Westminster made about the importance of the film industry. 
 With that in mind, I again ask the hon. Member for Arundel and South Downs not to press the amendment to a vote. The amendment would not achieve what Conservative Members want, although the points that it has raised are very valuable. I am not promising that I will definitely find a way, but I am 
 making a commitment to the Committee: I recognise that those two issues are sufficiently important for us actively to consider them beyond today's discussion. We shall try to settle them on Report, if we can. That is a big if, but I give that undertaking.

Howard Flight: I thank the Paymaster General for her comments and for recognising the problem. I think she feels that amendment No. 88 would not work because it would be too generous.

Dawn Primarolo: Yes, unusually.

Howard Flight: That is a good argument to deploy, although the amendment seems to reflect a point of principle, which the Paymaster General acknowledged. If the process has started, and costs have been incurred on the basis of the tax arrangements in place, I am not sure that the principle changes just because the eventual sale on a sale-and-leaseback arrangement is put in place only at the end. I am glad to hear that the Government are looking for a way of addressing the problem that minimises the costs, and I am grateful for the Paymaster General's comment that she will consider on Report those issues and others that emerge. In anticipation of the Government solving those nitty-gritty problems, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 98 ordered to stand part of the Bill. 
 Clause 99 ordered to stand part of the Bill.

Clause 100 - Distributions: reasonable commercial return for use of principal secured

Howard Flight: I beg to move amendment No. 236, in page 76, line 18, at end insert—
'(1A) In subsection (2)(e)(iii) of section 209 of the Taxes Act 1988 (meaning of ''distribution'') after the word ''securities'' insert—
''(other than securities in relation to which there exist hedging arrangements satisfying the conditions referred to in subsection (2) of section 209B)''.'.
 The clause affects banks and other financial institutions that may issue or deal in asset-linked securities, where the value of the security is linked to the value of other unrelated assets. Companies are generally able to claim tax relief for interest expenditure, but where the amount of interest is considered excessive, the Taxes Act 1988 treats the excessive amount as being a distribution of profit. In such circumstances, tax relief is not available. The excessive test applies by reference to the amount guaranteed to be repaid on the security, but when the amount to be repaid is linked to the value of particular assets, the guaranteed repayment could be negligible as the assets might fall in value, which could mean that any interest paid would be treated as excessive. 
 Although that is a somewhat theoretical point, the clause is designed to deal with that problem, and determines that, when the asset has fallen in value, the principal secured is taken to be the original amount invested and not the amount repaid. That provides certainty for companies and investors affected, and helps redress a possible competitive disadvantage of the UK compared with other jurisdictions. The clause 
 has been broadly welcomed as being constructive, but it does raise an issue that the amendment is designed to address. The amendment deals with a concern that the determination of whether interest is excessive might in certain cases operate where the arrangements are genuine financing transactions linked to the value of the particular assets, commonly referred to as credit-linked notes. 
 A bank issuing credit-linked notes will usually hedge its obligations by holding the relevant assets, as referred to in the explanatory note. In such cases there is the concern—this is what the amendment is about—that the return to the investor might, within the provisions of section 209 (2)(e)(iii), be treated as dependent on the results of the bank's business because the assets held are part of its business and the interest it pays are related to it. In such circumstances, the interest would be treated as a dividend. Clause 100 has sorted out the problems of section 209, as it was designed to do, but the bank would find itself caught by other section 209 provisions. The problem is a particular concern if the bank uses a special-purpose company within its group to undertake such transactions, and there is a significant incentive to issue such instruments from non-UK vehicles. 
 The amendment seeks to make it clear that in such circumstances the payment of interest on the credit-linked notes would not be treated as a distribution. It adopts the concept of hedging arrangements introduced in the legislation by clause 100 and, using that concept, seeks to disapply the provision of section 209 to results-dependent payments.

Dawn Primarolo: I hope that I shall be able to explain to the hon. Gentleman that his amendment is not necessary, as discussions with the industry have taken place. It is a complex matter, but I shall try to cover it. The hon. Gentleman explained in his introductory remarks the purpose of clause 100, and I am grateful for his comments.
 The amendment would introduce a relaxation in the rules defining a distribution of profit. Where distribution treatment would otherwise apply to payments that to any extent depend on the results of the company's business, those payments would instead be deductible as interest in computing taxable profits if hedging arrangements exist. That is tantamount to providing interest relief for dividends. I am sure that that is not what the hon. Gentleman intends. 
 The Government believe that the clause provides carefully targeted changes that benefit the UK by making it more competitive while protecting the UK tax base. I assume that the hon. Gentleman is generally content with the clause, because the amendment does not change the way in which it operates. Instead, it uses the definition of hedging arrangements in the clause for a completely different purpose. The clause has been carefully drafted to include a specific type of security that is not motivated by UK tax considerations. It does little more than test the commerciality of the return on the investment by reference to the amount paid in, as the hon. Gentleman said. Any amount greater than a 
 reasonable commercial return will rightly continue to be treated as a distribution. 
 If payments under a security at least partly depend on the results of the company's business, there is no obvious reason why the simple presence or absence of hedging arrangements should determine whether there is a distribution of profit. Sums arising under hedging arrangements in such circumstances are already dealt with under the established tax code and are independent of the distributions legislation. 
 Having had legal advice and discussions with industry representatives, we are confident that hedging arrangements will not cause the returns on securities intended to gain the benefit of the clause to be treated as distributions under other legislation. In cases that do not involve the specific asset-linked securities at which the clause is targeted, other distributions legislation may apply in the normal way. 
 In discussions with the industry, it has been agreed that the Inland Revenue will provide detailed guidance in manuals that will be publicly available on the application of the clause and other relevant legislation, including the legislation referred to in the amendment, and that it will discuss the draft with industry representatives to ensure that the point is covered. 
 It is illogical for the presence or absence of hedging arrangements to influence the application of the distribution treatment in the circumstances set out in the amendment. We are confident that guidance will reassure on that matter. For those reasons, I hope that the hon. Gentleman will be satisfied that the point is now covered. Should he want to be involved, and should he have further comments to make, we could ensure that he had a draft copy of the regulations at the same time that it was provided to the industry.

Howard Flight: I am very pleased to hear that that point has been picked up and will be covered in the guidance notes. I should be very grateful for a copy and, on that basis, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendment made: No. 211, in page 77, leave out lines 13 and 14 and insert— 
''(6) For the purposes of subsection (5) above, ''control'', in relation to a company, means the power of a person to secure—
(a) by means of the holding of shares or the possession of voting power in or in relation to the company or any other company, or
(b) by virtue of any powers conferred by the articles of association or other document regulating the company or any other company,
that the affairs of the company are conducted in accordance with his wishes.
(7) There shall be left out of account for the purposes of subsection (6) above—
(a) any shares held by a company, and
(b) any voting power or other powers arising from shares held by a company,
if a profit on a sale of the shares would be treated as a trading receipt of a trade carried on by the company and the shares are not, within the meaning of Chapter 1 of Part 12, assets of an insurance company's long-term insurance fund (see section 431(2)).''.—[Dawn Primarolo.]
 Clause 100, as amended, ordered to stand part of the Bill. 
 Clauses 106 and 107 ordered to stand part of the Bill.

Schedule 33 - Venture capital trusts

Howard Flight: I beg to move amendment No. 233, in page 459, line 29, after ''company'', insert—
''(irrespective of whether some or all of those shares are retained or cancelled)''.

Joe Benton: With this it will be convenient to take the following amendments: No. 234, in page 459, line 38, after ''company'', insert—
''(irrespective of whether some or all of those shares are retained or cancelled)''. 
 No. 235, in page 459, line 40, at end insert— 
 ''(2A) For the purposes of this Part of this Schedule there is also a merger of two companies (''the merging companies'') if—
(a) each merging company issues shares to members of the other merging company, and
(b) the shares issued to the members of each merging company are issued—
(i) in exchange for their shares in that company (irrespective of whether some or all of those shares are retained or cancelled), or
(ii) by way of consideration for a transfer to the company issuing the shares of the whole or part of the business of the other merging company.''.

Howard Flight: I begin, with modesty, by saying that this measure is one thing in the Finance Bill that my representations over two or three years may have had some little hand in achieving.

Dawn Primarolo: Well done.

Howard Flight: I thank the Paymaster General.
 My point is a small but important one. Venture capital trusts have been quite a useful, well-ordered and well-structured vehicle for getting money for new enterprises. I forget how long they have been going, but I think that it is about five years. It is inevitable that some have done well and some less well, that some are very viable and others have become less viable. As time goes by, there is an issue of how the whole matter is to be sorted out and tidied up. Not, I think, by intent, but in the original drafting, VCTs could not invest in the securities of other VCTs. Such investments were non-qualifying investments, so the natural market processes of mergers and takeovers was prevented. The time is now due for that to be able to happen and I greatly welcome the fact that clause 107 and schedule 33 address that issue. 
 The three amendments are not hugely fundamental to the main point, but seek to draw the definition of merger slightly more widely, to allow as many commercial situations in that territory to be covered as is reasonably possible. They would extend the fairly limited definition of merger in schedule 33(10) to cover situations where shares in one VCT may be cancelled or retained and where a merger arrangement involves both VCTs issuing shares to shareholders in the other VCT. 
 The Minister might say that the schedule as drafted intends to cover all forms of fair and reasonable restructuring, so I repeat that, while this is not a major point, it would be a pity, having got to this stage, not to cover all relevant reasonable situations for VCT restructuring.

Dawn Primarolo: I congratulate the hon. Member for Arundel and South Downs on his tenacity in pursuing that point through various Finance Bills. Those who can affectionately cast back their minds to the Finance Act 2000 will recall the hon. Gentleman raising that point and the then Economic Secretary to the Treasury giving an undertaking that we would consider it. A working group was formed to look at the issue and come forward with proposals. There has been extensive discussion with the venture capital trust industry on providing for the arrangements in the clause.
 Two routes have been provided, and the third route offered by the amendment was never raised in discussion by the industry. Quite late on, the Law Society of England and Wales proposed a third route, which the amendment follows, to achieve the intentions of the clause. The third route is not necessary and, to be honest with the hon. Gentleman, we have simply not had time to look carefully at the possibilities that it might provide. At the present time, I am more than a little nervous that inadvertent avoidance that was not intended in other interactions with the tax system might be possible. 
 I assure the hon. Gentleman that what the amendment seeks to provide is already provided. None the less, we will continue to look at that area to give the proposals proper consideration, but at this stage I am not prepared to amend the Bill when the routes are already provided. Given that he has been successful in the past by our allowing the Inland Revenue to go away and look at an amendment, I hope that on this occasion he will accept that we have not had time closely to look at the amendment, which we do not think is necessary. If he withdraws it, however, I shall certainly make sure that it is covered properly and that a detailed response is sent to the Law Society.

Howard Flight: I thank the Paymaster General for her comments and I agree with what is provided, which would allow most venture capital trust consolidations of which I can think to occur. However, I am glad to hear her commitment that she and the Revenue will consider whether the issue is sufficiently material to address. On that basis, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Schedule 33 agreed to.

Clause 108 - Land in disadvantaged areas

Howard Flight: I beg to move amendment No. 168, in page 85, line 6, after 'dwelling', insert—
'without significant expenditure being incurred on it'.
 I wish to make a number of points, most of which I shall confine to the second part of the debate, on 
 clause 108 stand part. I shall initially deal explicitly with amendment No. 168, although its context is wider than that. The clause seeks to exempt from stamp duty commercial properties and certain other defined properties in disadvantaged areas if the proceeds of their sale are less than £150,000—the threshold for all other property is £60,000. That could lead to distortion on the borders of disadvantaged areas. The Law Society suggested the amendment because, under the clause as drafted, a building—the example often quoted is a church—could be adapted to residential use and, because it would be treated as a residential building, it would not qualify for stamp duty relief. The amendment would make it clear that it should so qualify.

Dawn Primarolo: In responding to the amendment and putting the intention of the relief clearly on the record, I hope that the hon. Gentleman may decide that he need not press it to a vote. I appreciate what he said about the wider debate that he wants on new clause 16 and will confine myself to the points that he made.
 Let me start by saying that stamp duty relief for land in disadvantaged areas is clearly destined to be an important part of the current and future stamp duty regime. The level of representations and inquiries made to the Inland Revenue already suggests that our proposal to abolish stamp duty for non-resident transactions in these areas is of great interest. I well understand why the definition of what will be and, more importantly, what will not be treated as a residential property is exciting much interest and is the reason for the amendment. 
 I remind the Committee that, in the vast majority of cases, there will be no doubt whatever about whether a building is a residential property. However, a minority of cases will inevitably fall into a grey area. I suggest that practitioners and lawyers who considered the legislation in detail seem to be trying in the amendment to make the grey area much wider. I hope that the clarity with which I explain the definition will persuade the Committee to agree to leave the clause unamended. 
 The argument has been made that an office block or church might be suitable for use as a dwelling. I can state categorically that that argument is not acceptable for the purposes of the relief. However, to put people's minds at rest, the Inland Revenue will produce a statement of practice with key stakeholders, including representative organisations. The aim is for the statement of practice to be ready for publication when the differential regimes are implemented. 
 It may help the Committee's understanding still further if I explain why we thought it necessary to include a 
''building . . . suitable for use as a dwelling''
 as well as a building used as a dwelling within the definition of residential property. Quite simply, the intention is to ensure that existing dwellings that are unoccupied when sold or that are dilapidated or even semi-derelict are within the definition of residential property. For example, in London in recent years, a number of former squats have been sold by local 
 councils and have been in a poor state of repair. It is not my intention to exempt such properties from stamp duty if they exceed the £150,000 limit. They are fundamentally the shell of a desirable home, and that is reflected in the purchase price. No additional stamp duty incentive is needed if such a property is worth more than £150,000. A less extreme example is the need to ensure that a vendor could not remove a bathroom suite from an otherwise perfectly kitted-out home to help the purchaser secure a stamp duty saving. Perish the thought of that happening, but experience teaches us that it could unless we ensure that it cannot. 
 In the consultative document on the clause, published at the end of last year, our approach was further explained by reference to the level of expenditure necessary on a former dwelling to make it habitable again. That is perhaps the reason why the amendment alights on expenditure as a guiding factor. The level of expenditure, however, will not always be the key. To introduce, as the amendment does, the concept of significant expenditure without any further definition will merely continue uncertainty. A detailed statement of practice is a far more sensible way in which to add clarity to the issue. 
 I reiterate that there is no intention to interpret ''dwelling'' in the phrase, 
''suitable for use as a dwelling'',
 as a church, an office block or similar commercial buildings. Nor is it intended to stretch the phrase to include land without any building on it but for which planning permission to build dwellings exists. That query has been raised since the Budget so it is best that I clarify it. 
 The amendment would not greatly assist the interpretation of the clause, and could unintentionally make the clause more difficult to interpret. I am confident that the proposed statement of practice will be more effective than the amendment in helping developers, and those involved in proposals in the inner city, clarify what is and is not included. However, I entirely accept the good intentions of the hon. Member for Arundel and South Downs; he is trying to ensure that the relief works well. On that basis, I hope that the hon. Gentleman will not press the amendment. If he has a particular interest in the area, I invite him to see the draft statement of practice—I shall rope him in as an unofficial adviser. He has been rather accurate in some of his comments. With that little bit of flattery, I hope that he agrees to withdraw the amendment.

Howard Flight: I shall not prolong things more than necessary. I am delighted to hear that a statement of practice will address the problem and other issues. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Question proposed, That the clause stand part of the Bill.

Joe Benton: With this it will be convenient to discuss new clause 16—Rate of stamp duty on commercial property—
'.—(1) In Schedule 13 to the Finance Act 1999 (instruments chargeable and rates of duty) after paragraph 3 of that Schedule insert a new paragraph 3A—
''3A In the case of a conveyance or transfer of land which is not residential property within the meaning of section 92A of the Finance Act 2001 the rates of duty are as follows—
1. Where the amount or value of the consideration is £60,000 or under and the instrument is certified at £60,0000 Nil
2. Where the amount of the consideration is £250,000 or under and the instrument is certified at £250,0001%
3. Any other case2%''
(2) This section applies to instruments executed on or after 1st August 2002.'.

Howard Flight: The proposals under clause 108 raise many issues. As in the debate on film incentives, I have reservations about tax measures designed to have specific beneficial economic effects; they are often used—or, as the Paymaster General said, abused—for other purposes, or they can cause unfairness in other directions. Of course, everybody wants to see disadvantaged areas prosper, and as I recollect, the definition of the territories is determined so that almost all MPs have one on their patch. Therefore, there is an apparent mutuality of interest. I just want to put down a marker that I anticipate many problems being raised. The obvious issue is that in a relatively defined region, if one gives attractive things to one territory, it is like giving unattractive things to another. My big worry is that one might succeed in rejuvenating the most disadvantaged areas, but leave the lesser disadvantaged areas to become the most disadvantaged fairly quickly. However, that is a wider issue of principle.
 The second issue is that we have had four stamp duty increases since 1997. Stamp duty has become the window tax of our times: a nice easy way of raising lots of money. Given that the efficiency of tax raising is always top of the list of Government arguments, the implications have not necessarily been thought through. About 70 per cent. of the extra tax revenue has fallen on commercial property, due to what the Government have viewed as the operation of avoidance schemes. A series of blocking measures in the later clauses mean that revenue will fall on commercial property even more. 
 For a business, premises are really no different—depending on what one is doing—from the computers, equipment and so on. They are part of the productive process. High taxes on commercial property could turn out to be bad economic news. They restrict mobility when businesses are growing or contracting, and I do not see that there is a particular logic for having an increased turnover tax. 
 New clause 16 is designed to reduce the level of stamp duty on commercial property. It would amend the provisions setting the rates of stamp duty and reduce the maximum rate of duty on commercial property to 2 per cent. It would introduce a new paragraph into the Finance Act 1999, which sets out the rates of duty and the maximum rate of 2 per cent. applicable to transfers over £250,000 in value. The definition of residential property is taken from the 
 current Finance Bill, which amends the Finance Act 2000 and provides an exemption from duty on land in disadvantaged areas. 
 That is what the new clause is about. Part of the reason why it has been put under this clause is that, when we raised the issue before as to whether commercial and residential property should be treated the same way for stamp duty purposes, the Government argued that that was not possible because it was too difficult to make the distinctions between the two. However, in clause 108, the distinction is made between land and buildings in disadvantaged areas and commercial property. I think that the Government have rather undercut their previous argument that the issue was too complicated to consider on principle. 
 Our first big point on the clause is to say that it is a nice easy earner, but have the Government really thought through the economic consequences? They are almost admitting that they have concerns, because if they deem it correct to give a commercial property and certain other properties in disadvantaged areas a big stamp duty advantage—in fact, no stamp duty at all—they perceive the economic difference between commercial and residential property. 
 A number of amendments were not, I am afraid, in time on Friday to be tabled and are starred. They are broadly probing amendments only. They raise some other issues relating to clause 108. If I may, I shall raise those issues briefly now. 
 The first point is a technical one about the definition of ''residential property''. I think that the original drafting was taken from the Value Added Tax Act 1994. Surely it would be sensible to ensure an identical definition of the same thing as it applies across different taxes. The most obvious definition to copy is the VAT definition, which is likely to be most relevant to commercial development. The list that the Government have set out in the Bill appears to be taken from the VAT Act list, but has been modified to obtain an acceptable result. If the Bill has the correct list, does that mean that the VAT Act should be amended? That point, as the Government know, has been made by the Chartered Institute of Taxation. 
 The second big issue is that clause 108 contains a list of properties that are clearly not commercial but that are exempted, for unprescribed reasons. I am again reminded of the list of assets relative to enterprise investment scheme and venture capital trust investments, which is now substantially out of date. That is one of the problems with having such lists. Our thinking is, ''What is the logic of the items on that list?'' Other properties that one could think of are not commercial but are just as important and worthy of exemption economically. 
 Hospices are included, but why not include accommodation provided for nurses in connection with their services at a hospital or hospice? That is a major issue in connection with getting enough nurses into the health service. We have other charitable ends in mind. A suggestion made to me was to ask about accommodation for staff working at such places as animal sanctuaries. More particularly, what about 
 including accommodation made available for key essential workers in public services, where they have a problem, especially in the south-east? One could go on with a list of deserving cases, but we have such a list at present and it does not necessarily include all the most deserving. There may be some technical logic to the list but in terms of economic logic, which is what clause 108 is all about—fiscal incentives for economic improvement—it raises quite a big issue. 
 The final point is that, as hon. Members are aware, clause 108 requires state aid approval from the EU. I understand that the UK wrote to the EC on 21 December about its proposal to abolish the £150,000 limit on exemptions on transfers of non-residential property in disadvantaged areas. The UK has been invited by the EC to present its case, but the view has been expressed to me that, as when the Government last approached the EC over a lower rate of VAT for church repairs, there are indications that the EC is unlikely to be persuaded. That would completely scupper the clause. Does the Paymaster General have something to say on why the Government are apparently confident that the EC will give its approval?

John Pugh: In rising, I am aware that you know that there are many disadvantaged areas in the country that badly need aid, Mr. Benton. Your constituency is certainly one of them, which has received a good amount of aid over time. No one doubts that many constituencies and areas within constituencies require some Government help to achieve economic and residential development.
 The issue is not whether that is a desirable objective but whether the measure will go some way towards achieving it. The Government's intentions are entirely laudable, and I support them. There is a roll-out of benefits, particularly on stamp duty for disadvantaged areas. However, as hon. Members have indicated, there are problems with the definition of a disadvantaged area. Let me read from the memoranda submitted to the Empty Homes inquiry. In discussing property transactions in Britain's most disadvantaged communities and the abolition of stamp duty—precisely the issue dealt with in clause 108—the Council of Mortgage Lenders said in its evidence: 
''It needs to be recognised that definitions are a problem though. How are 'disadvantaged communities' identified? And does labelling a community 'disadvantaged' create its own problems?''
 A problem that has been highlighted is that of areas at the margins. There was a city challenge project in your constituency, Mr. Benton, many years ago. One of the issues was to get assistance to the right areas rather than only to the areas that were in a tightly drawn geographical map, and much leeway was needed to ensure that the effects of the project were as the Government intended. No one doubts that the alleviation of stamp duty will do no harm; the question is how much good it will do. Obviously, stamp duty alleviation is not the only factor that prompts economic development, which I assume is the Government's intention. Offsetting economic development are the people at the margins who feel that they are in some sense disadvantaged by not being 
 classed as disadvantaged. Clearly, there are also problems of administrative cost and loss of revenue. Set against that, there must be some appreciable gain. 
 I am not entirely certain what new clause 16 would do to improve matters. A typographical feature of the new clause confuses me, perhaps because of my inexperience or inability to understand some arcane phrasing. Paragraph 1 of proposed new paragraph 3A states: 
''Where the amount or value of the consideration is £60,000 or under and the instrument is certified at £60,0000''.
 Should that be £600,000?

Howard Flight: I thank the hon. Gentleman for giving way. I did not want to interrupt him in midstream. The Chairman, not I, selected new clause 16 for inclusion here. I sought to explain how it related to the clause. It is tangential, but the essential point that clause 108 establishes is that if the Government want to, they can separate commercial and residential property for the purposes of stamp duty. If there is an economic argument much wider than disadvantaged areas for commercial property not paying such high rates of stamp duty—for economic mobility, for example—the old argument for not taking that approach, which was that it could not be done, has been undermined by what the Government are doing.

John Pugh: My question to the hon. Gentleman deals with a typographic, textual and extremely narrow topic. I simply do not recognise the figure consisting of £60 and four noughts. It could be that I am innumerate or that it is an error. If someone assures me that that is the way it ought to be written and that it is common parliamentary practice, I shall be much the wiser. As it stands, it is not a figure that I recognise. Is it a misprint of £600,000 or £60,000?

Howard Flight: I apologise. It is a typing error.

John Pugh: That is the clarification I sought. It is meant to be £60,000.
 Let me conclude by saying that I have no objection to what the Government intend to do. I wish them every success in achieving economic development in disadvantaged areas, as do we all. However, what assessment has been made of what has already been done in the 2001 Budget? What assessment have the Government made of the success of prior initiatives in this direction, and what assessment will they make of this initiative? We can do things, but our efforts must be effective.

Chris Grayling: I rise to address the clause, which strengthens the Government's intention to provide stamp duty reliefs in designated areas. It is a wholly inadequate way in which to generate growth and development in deprived areas. The Government's approach to stamp duty adds to problems rather than solving them, and is not the solution to problems in disadvantaged areas.
 The hon. Member for Southport and I both served on the Select Committee that carried out the Empty Homes inquiry, and we know that the measure will have no impact on our most deprived areas because sales of properties in those areas are not subject to stamp duty. It is a fallacy to believe that the measure 
 will make a major contribution to the revival of many of those areas. The Government's approach is completely inconsistent in addressing stamp duty while failing to address the fact that VAT is payable in full on renovations in deprived areas. How can we possibly support the regeneration of areas that are beset by empty housing in the north of England, where there are big empty terrace homes that desperately need to be revived and brought back into economic use, while the Government continue to discriminate against renovations through the VAT system? The clause will not address that issue. 
 It also concerns me that the Government seem to believe that the measure will make a big difference in that area although they have completely failed to deliver a proper GAAP generally accepted accounting practice funding scheme because they caved in to pressure from the European Union, which has prevented GAAP funding being used in a number of areas. My hon. Friend the Member for Arundel and South Downs rightly made the point that many provisions in the clause will be vetted in Europe. Why do we not stand up more robustly to the European Union when it seeks to intervene and take decisions on matters of urban regeneration that are fundamental to the development of this country? That should not happen, but it seems to happen again and again. I am waiting in vain to see the Government take action to solve those matters. They cannot seek to use stamp duty as a major vehicle of urban regeneration while failing completely in other areas.

Tom Harris: I thank the hon. Gentleman for giving way. Although I agree with his assertion that the measure will not alleviate at a stroke some of the areas of deepest deprivation in the country, does he accept that it is at least part of a larger strategy? In my constituency, which is one of the most deprived parts of Glasgow, the first ever sale of a house costing more than £100,000 took place in the past six months. Surely the measure is having an effect, albeit a modest one, that he should welcome.

Chris Grayling: The point that the hon. Gentleman misses is that we should provide support for regeneration across the housing scale, and not simply for the very small number of houses in his constituency and other areas with problems that fall into the category covered by the clause. Tackling the tax system in other ways would have a far greater impact than the clause, which will have a relatively limited impact on the most deprived areas and will create distortions within the market.
 We shall create a Gruyère cheese in which pockets of reliefs are available in major cities and in which the housing market on the fringes of those areas will be distorted. Indeed, that is already happening. It is totally the wrong way in which to use stamp duty. My hon. Friend the Member for Arundel and South Downs rightly pointed out that the Government seem to believe that stamp duty is a cash cow. They believe that, where there are holes in the cheese, they will have a few pockets where they will get rid of stamp duty. They do not seem to understand that the impact of 
 using stamp duty as a cash cow will be to generate problems in areas where housing costs are particularly high and it is increasingly difficult for key workers people in public services, manufacturing industry, and bus and train drivers to get on to the housing ladder. 
 The focus on using stamp duty in the majority of the country as a vehicle for raising tax while providing reliefs in a small number of deprived areas is totally wrong. It places a huge burden on those buying houses for the first time in areas where house prices are high. Young couples, teachers and policemen who are trying to get on to the housing ladder are subject to bills for thousands of pounds. The Government say that, in small areas within the inner cities, a relatively small number of properties can benefit from stamp duty relief. Such a policy is upside down.

Ann McKechin: Does the hon. Gentleman accept that a decrease in stamp duty in areas of high demand is likely to cause prices to go up even higher because of further demand in those areas? The whole point of the strategy is to encourage those in middle-income groups to move into areas of urban deprivation. It is a small, but important, measure. As my hon. Friend the Member for Glasgow, Cathcart (Mr. Harris) said, people are now moving into the areas of Glasgow that we serve, where previously there was no private housing whatever. As a result of the measures, people are being encouraged to consider moving into inner cities that have suffered from depopulation and consequently from a lowering of the tax base. When we lower stamp duty, property prices in the highest-demand areas simply rise further because of greater competition.

Chris Grayling: The point that the hon. Lady misses is that people will not be attracted back into urban or inner-city areas unless the quality of the housing stock is raised. The clause will not do that; it will provide a small distortion in the housing market that will cause problems on the fringes.
 If one says that stamp duty will no longer be charged in a deprived area—the Paymaster General said that she intends to scrap stamp duty altogether in such areas—distortions will be created on the fringes so that stamp duty will have to be paid in one street but not in the next. That will also restructure the tax system so that in the more prosperous areas where house prices are higher, the increased burden of stamp duty will make it more difficult for key workers, whom we need in such areas, to get on to the housing ladder. The Government have their priorities completely wrong: stamp duty is being used as a cash cow to fill the Treasury's coffers. That will have a distorting effect on the housing market for those who need to get on to the property ladder and will not deliver real solutions for the problems that undoubtedly exist in inner-city areas. We should take tax steps that encourage the regeneration of the sorts of areas that we saw in the Empty Homes inquiry. The Government's strategy will go no way to achieving that.

Mark Field: I am inclined to respond to my hon. Friend's comment that stamp duty is being used as a cash cow by saying, ''You ain't seen nothing yet.'' There is no doubt that the Chancellor of the
 Exchequer and the Government will use stamp duty on residential and commercial property as a vehicle to introduce a largely redistributive agenda. The Government have every right to do that, but I would be happier if they did it honestly and in an up-front way by projecting an entirely redistributive agenda. Let us have an open debate. I appreciate that now is not the time to have a major debate, but the Government's intentions should be clear.

Howard Flight: I understand my hon. Friend's redistributive reference, but surely in commercial property the level of stamp duty is a major economic issue and not about redistribution. The real question relates to the impact it has on the success of businesses, jobs and so on.

Mark Field: My hon. Friend is absolutely right. Business is regarded somewhat differently by each side of the House, and he rightly says that stamp duty has a major economic part to play.
 Greater concern will arise over a free market. It is valid for Labour Members to point out that we do not have a free market at the moment. The existence of local authority property and a large number of housing associations, and the fact that a significant number of key workers work in monopolistic public services, ensure that we do not. I know as a London Member—as, I am sure, does the hon. Member for Enfield, North (Joan Ryan), who is silent in her role as a Whip—that great concerns exist in the London market; they exist not only in London, but in other hotspots of the national economy. Key workers in both the private and public sectors are consequently unable to get on the residential housing ladder. The Government's meddling with the commercial property area in clause 108 and others—I know that it is an initiative extended from previous years—is a starting point for further meddling in what is an imperfect property market. However, we should not be at all surprised that it will have, as is always the case with Government interventions, some unintended consequences, particularly I fear on the general economy. 
 I would just point out that one of my concerns about the nature of my constituency appreciate that my constituency is very unusual is that there are some very deep pockets of poverty. Whenever I point out that I represent an inner-city seat, it always gets one or two wry smiles from those on the Government Benches. It is the most inner-city seat of the lot, but it has some very real pockets of poverty. 
 I do not think that there is any easy way out, and my basic thesis is that there is too much Government meddling. However, if they are to meddle and say that areas will be considered as disadvantaged for the purposes of such provisions, in parts of London—and Glasgow as well—one needs to draw tight areas, not necessarily in wards, but perhaps within polling districts. The great worry is that there are genuine pockets, perhaps even of a handful of roads, of poverty that will find themselves outside the context of a disadvantaged area, simply because they are surrounded by some relatively affluent areas. By 
 being lumped together, it gives rise to the view that there is no longer such a sense of disadvantage. 
 I can understand that this sort of meddling plays to a very profitable gallery. It is perhaps not entirely coincidental that the two Members who have previously intervened were both Scottish Members, and I suspect that they will welcome the intervention of their right hon. Friend the Member for Dunfermline, East (Mr. Brown). It strikes me that we shall see much more of such meddling, but Conservatives cannot support it, as a matter of principle.

Dawn Primarolo: The debate on new clause 1 has been very wide-ranging. If I may say so, Conservative Members seemed a little confused about what they wanted to complain about. I think that I got the gist of it by the end: they hate stamp duty and want to get rid of it. The main legislation governing stamp duty was put in place in 1891, I think. The only consolidation that was carried out took place in the Finance Act 1999. For a party that now advocates such strong views on stamp duty, it is somewhat interesting that, given the amount of time it managed to be in Government, it did not actually address some of the passionately and deeply held views that Conservative Members are now expressing.
 It is true that stamp duty raises considerable revenue: about £4 billion a year. Some 60 per cent. of that figure comes from residential property, and during the debate on the next clause we shall be considering whether commercial property actually pays the level of stamp duty that is set. The new clause concerned the setting of new rates. It is an interesting approach; having complained about the structure of stamp duty, the Conservatives advance a new clause to change the rates without offering any contribution on whether the structure is right in the first place. That is the huge gulf between the Government and the Opposition on the issue. 
 I shall consider the groups of points in the order in which they were raised. I turn first to whether the relief will work. In response to the idea that the Government are doing nothing in disadvantaged areas except making some changes to VAT and stamp duty, I say, hang on. Hon. Members are missing a few points there. There is a national strategy for neighbourhood renewal that concentrates, in a range of areas, on regeneration and on narrowing the gap between the most deprived areas and the rest of the country. Key to that strategy is the mainstreaming of Government Department resources into the neighbourhood renewal fund and the introduction of arrangements such as stamp duty and the changes to VAT to support that basic principle. 
 In terms of success, the measure currently in place was turned on on 30 November 2001. By the end of this April, the number of claims from those disadvantaged areas was running at 15,870. When one looks at the breakdown, one finds that the largest number of claims comes from precisely the areas that one would expect—for example, east London accounted for 1,300 applications, in that short period of time, of all the applications made for London, 
 which were running at some 3,300. The relief is being targeted very specifically on areas that need support.

Mark Hoban: Will the Paymaster General give way?

Dawn Primarolo: I shall give way to the hon. Gentleman before I quote all those in the property industry who support the stamp duty measure, because, in sites like the old Hither Green hospital in Lewisham, it provides precisely the mechanisms that hon. Members have claimed it will not.

Mark Hoban: The Paymaster General referred to success following the turning on of the tap of the lower rate of stamp duty in such areas. Can she tell us what the transaction volumes were before that tap was turned on? I consider that we can call that a success only if it is one relative to what was happening before that date.

Dawn Primarolo: I agree with the hon. Gentleman's point about measuring the success of the policy. I do not have the figures to hand right now, but I can tell him that the Government have commissioned independent research on the effectiveness of such measures, and on that measure in particular, to examine the policy objectives and whether the measures are working. Although other things may also influence the rate of transactions before and after the turning on of the measure, the hon. Gentleman's essential questions, which I believe are behind his intervention, of whether the measure is working and will work and how the Government will monitor it, are important. We are addressing those points by having that research undertaken on our behalf. It is right that the research measuring the objectives in such a case should be independent.

Chris Grayling: Will the Paymaster General give way?

Dawn Primarolo: Yes, although—forgive me—I am trying not to lose my way. Having ordered my thoughts in a sequence to respond to hon. Members, I am in danger of not maintaining them.

Chris Grayling: My point is important, and I am grateful to the Paymaster General for giving way. What she is saying, therefore, is that we do not yet know whether the measure has had an impact.

Dawn Primarolo: No, I am not. I was trying to be generous to the Committee. I think that the measure has had an impact, but it is perfectly reasonable to make the point that its impact should be considered over a longer period than the first year. I am not saying that it has not worked. Consider what those in the industry say. For instance, Andrew Hume, associate director at property consultants Jones Lang Lasalle, said:
''This is very good news. Bigger commercial schemes act as catalysts for the regeneration of areas. This will reduce the entry costs for developers in these areas.''
 That was reported in The Independent. 
 If we look at the question of the old Hither Green hospital site in Lewisham, the Evening Standard reported: 
''A redevelopment at Hither Green Lewisham—a self-contained site, formerly a Victorian hospital of 7.5 acres—has been conceived to deliver homes below the £150,000 threshold . . . Bellway's chief executive, John Watson, said the stamp duty relaxation has 'given us encouragement to take on the project'''.
 I could go on through the press quoting those in the industry who are operating the scheme. 
 I understand that the hon. Gentleman might be sceptical about the scheme. However, in one debate the Opposition state that we should listen to the industry because it knows best, but when what it says does not suit the Opposition, they claim that it is not worth anything and should therefore be ignored. I do not take that view because I try to be consistent in listening to what is being said.

Iain Luke: My hon. Friend the Paymaster General gave examples of English redevelopment. Will she accept from me that in Scotland changes in areas such as Dundee and Glasgow, which was mentioned earlier, have made a significant difference to the most deprived areas? In both the inner cities and on the periphery, areas have been created in which people are happy and proud to live. That new step will take those areas of redevelopment further. Places such as Ardler in Dundee, West and Whitfield in Dundee, East are deprived areas that have seen significant changes. Whitfield is still changing, and some time ago it received a United Nations award for urban settlement as part of that policy. Hopefully my hon. Friend will acknowledge the changes both north and south of the border.

Dawn Primarolo: Indeed. I hope that my hon. Friend will forgive me because the two examples that I read from the top of the pile came from England. Because we are using a deprivation index that provides a national comparison between Scotland, England, Wales and Northern Ireland, all those communities are benefiting. My hon. Friend made another important point that measuring economic regeneration in disadvantaged areas concerns more than whether or not houses have been purchased. Each purchaser at the time of purchase will have another £1,500 to assist with their family's budget at a time at which it will be stretched, and they will spend that money in the local area. The policy will not only help people on to the housing ladder, but improve quality of life and have a knock-on effect.
 That leads me to the next point made by Opposition Members—that the measure will displace economic activity. With respect, it is just as likely that the exemption will have a beneficial effect across neighbouring and non-qualifying areas as areas are improved and investment continues. As I have said, we have used the national index of deprivation. Of course, such measures are never perfect because a line must be drawn somewhere, but it is the most accurate and up-to-date information that we have.

Chris Grayling: Will the Paymaster General give way?

Dawn Primarolo: I was just about to answer one of the hon. Gentleman's points, but I shall gave way first in case there is another one.

Chris Grayling: The Paymaster General keeps referring to the national index of deprivation and has made several references to Hither Green hospital. I doubt that there is a single polluted brownfield site in the whole of Greater London for which there would be a shortage of willing developers. Does the hon. Lady accept that in many parts of the country there are real problems in the housing market that simply will not be touched by the measure?

Dawn Primarolo: No, I do not accept the hon. Gentleman's central proposition. For instance, if we look at the activity in Liverpool, Manchester and other areas that equally need investment, we see the same levels of activity. The problem with the hon. Gentleman's approach is that instead of looking at the breadth of Government support and intervention in areas of deprivation, he tries to look at each initiative on its own and then undermine the general principle. That goes back to the point that I made to the hon. Member for Fareham about the difficulty in but, none the less, importance of trying to measure the effectiveness of the policy in the economic regeneration of those areas and in narrowing the gap. Of course, several policies are already in place.
 A further argument made by the hon. Member for Epsom and Ewell was that the poorest areas would not be helped, because house prices in those areas were below £60,000. I do not know what poorest areas in the United Kingdom the hon. Gentleman has recently visited, but I assure him that all parts of the country contain a broad range of residential and commercial property types and prices. Any extra incentive to invest in a disadvantaged area to encourage and help regeneration seems to draw wide agreement, except from Conservative Members.

Chris Grayling: As the hon. Lady does not know what areas of deprivation I visited with the Select Committee, I may tell her that we visited a number in Burnley, Manchester and Liverpool. The areas that we visited would in no way fall within the ambit of the measure. I commend the report to her.

Dawn Primarolo: I live in Bristol, a city that has a wide range of property prices. Several areas—some in my constituency—are in wards that meet the deprivation indices used for absolute poverty. I am sure that if the hon. Gentleman had visited Bristol on his varied trip, he would have understood my point about properties ranging dramatically in price, particularly in inner-city areas where people would prefer to live, given the proximity to other regeneration projects that are in place in cities, but cannot because of shortage of accommodation. The hon. Gentleman and I will simply have to disagree on whether the mechanism is suitable but, being generous to him, I presume that he is not suggesting for a minute that there should be no action to deal with regeneration of the housing stock and commercial activities in such areas.
 I was also asked about state aid approval. We are progressing matters with the Commission and confidently expect a satisfactory outcome. We believe that careful targeting of the measure on the most 
 disadvantaged areas of the country will not adversely affect trading conditions to the extent that they are contrary to the common interest. When Conservative Members ask why we allowed the situation, I reply that it was for the same reason that the Conservative Government did: the state aid rules are in the treaty—a treaty agreed by the Conservative Government—and Commission agreements contain long-standing considerations. 
 The hon. Member for Arundel and South Downs also asked why we do not use the VAT definition. We had a debate on the previous amendment concerning how complex it is to resolve the dividing line between residential and non-residential property. We are trying to do slightly different things in the two arrangements. Our intention is to afford more favourable treatment to the purchase of non-residential property, whereas for VAT purposes it is the residential property that is viewed as receiving the more beneficial treatment. That is why we cannot take one from the other. We aim to be consistent while applying underlying principles. 
 The final thrust of the contributions of the hon. Member for Arundel and South Downs settled on the wider issue of what the correct rate of stamp duty should be for commercial and residential property. He put that in isolation without considering the wider question of whether it was time to examine the structure of stamp duty. I agree that there are wider economic interests to consider, such as issues of fairness. Recognition of the current levels of avoidance of stamp duty and the overwhelming need to modernise and reform the tax is the way forward. We do not believe that it is the right time to consider decoupling the rates. We want to look at structure and consider the rates. 
 There are further reasons for rejecting new clause 16. It cuts the top rate of stamp duty to 2 per cent. on purchases of commercial property. It would cost £740 million in a full year. The hon. Gentleman has not suggested how the Government would make up the shortfall, or what they should not invest in. His party continues to argue that public services should be extended, but it has not suggested which should be cut. It is widely acknowledged that some purchasers—I put this delicately, I do not know why—of commercial property are actively avoiding stamp duty. Estimates of value vary tremendously, but we believe that about £10 billion of property value is currently escaping the charge due to such activity. It seems the right approach to look first at the structure and then consider the rates, not throw away the revenue and be left with a system underpinning it that is not working. Against that background, are the Opposition seriously suggesting that we should sanction a tax cut of £740 million to commercial properties? Surely that is not the right way to reform stamp duty and stop avoidance. 
 The Government have announced the intention to fundamentally reform and modernise stamp duty on UK land and buildings from late 2003–04, and we are now consulting on stamp duty modernisation. We are currently consulting the industry and various Departments, taking forward discussion on how the regime can best be introduced and implemented. To table proposals at this stage to dramatically reduce the 
 income from stamp duty without dealing with what has been clearly said by all those concerned—the need for underlying reform—would be folly, to put it mildly. 
 I hope that the hon. Gentlemen feel that they have had a good debate on why they do not agree with the Government's proposals to invest in disadvantaged areas to encourage that regeneration, even though the Government do not accept their points, and that they have had a good debate on the question of rates of stamp duty but will not press the matter to a vote. Perhaps they will return to it when the review and the reform have been completed. If they do, I shall ask my hon. Friends to oppose it on the basis that it is nothing more than a tax cut for those who do not need one, paid for by disadvantaged areas that desperately need the investment.

Ann McKechin: I rise to support the Government on the measure. Following some 18 years' experience in the property market in Scotland as a solicitor, the old adage ''Location, location, location'' springs to mind for today's debate. It is ironic that we have been speaking today about Glasgow house prices but that Thorntonhall, just outside Glasgow, has now been declared the wealthiest suburb in the United Kingdom. Average house prices there are in the region of £500,000.
 That information shows the vast range of land values in the United Kingdom and, in particular, the range in rates of increase in land value on a year-by-year basis. In certain parts of the city that I represent, residential and commercial property prices are increasing by only 2 per cent. per annum and in many cases the increase is below the rate of inflation. In other parts of the country—in the south-east of England, as we well know, but also in hotspots such as Edinburgh, as was pointed out earlier—house and commercial property price increases can run at 20 per cent. plus per annum. 
 The measure is a modest one that must be seen as part of a package of ways in which we are trying to regenerate our urban communities. Its aim is to achieve a better mix of social and private housing in many areas and to encourage a better quality of private housing in certain areas that suffer from a severe lack of it. 
 The problems mentioned today about overheating in the London market are perfectly understandable but any decrease in stamp duty simply fuels price increases in areas already undergoing a rapid rate of 
 increase. I recall that the previous Administration, the Conservative Government, actually increased exemption from stamp duty, over a period of time, to try to alleviate the problems that occurred because of the collapse of prices in the south-east of England. However, that problem was unique to that part of the country and was not occurring in other areas. We could perhaps argue that the exemption should have been targeted at one area only, rather than applied to every postcode in the United Kingdom. 
 The lack of affordable housing must also be related to the quality and availability of social and rented housing. The problems raised must be seen in that context. If there is poor quality private property, the question is raised of whether improvement and repair grants should be made available to deal with that, rather than using the blunt instrument of stamp duty. 
 The measure is useful but, as my hon. Friend the Paymaster General correctly pointed out, we require a longer time scale to discover the real benefits. Property turnover is not exactly rapid in areas of slower growth. It will take a little time for the measure to get going, but it is very welcome. As I have said before, I am seeing in parts of Glasgow where I would never have anticipated it—in areas of multiple deprivation—private housing now being built at prices of more than £60,000, and selling quickly. As a result, those areas are being regenerated much more quickly than previously.

Howard Flight: First, I feel that the Paymaster General slightly misrepresented what I was seeking to say. We all support and want to see the regeneration of deprived urban areas. Leeds, Bristol and parts of London have been a marked success. I made the point that almost every MP has a deprived area in their constituency, so there is widespread support for that. I was just saying that using very focused engineering measures such as this can present problems. The Government must think about what those problems might be.
 I specifically raised an issue to which the Minister did not reply—that in the list in clause 108 that chooses to define certain categories as not residential, I could find other equally deserving categories in the inner cities that should be given exemptions. Once we start trying to fine tune, issues and problems are created that need to be solved. 
 It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
 Adjourned till this day at half-past Four o'clock.